As you plan for the year ahead, have you thought about refinancing your home to get out from under high-interest credit card and personal debt?

If that seems to be throwing good money after bad, and risking your hard-earned equity, consider the benefits of a cash-out refinance to consolidate your debt.

The Real Estate Boom Benefits Your Home Value

The real estate market has recovered from the recession, and housing prices have been steadily rising for several years. Even if your home value dipped during the worst of it, chances are good that it’s not only bounced back, but that you’ve seen an increase of 5-10 percent each year. In simple math, if your home was worth $250,000 in 2008, it may well be worth over $330,000 today. And assuming your mortgage balance was $225,000 back then, by now it should have amortized down to $220,000, to be conservative. In this example, your equity has ballooned from $30,000 to around $110,000. So if your cards and other loans add to up $40,000, you’ve still got a solid equity cushion in the house, and there’s no need to fear you’re at risk with a cash-out debt consolidation loan.

The Math Is Better With A Cash-Out Debt Consolidation Loan

Interest rates on mortgages are still at what are considered historic lows–under 5%. Now go look at your credit card statements, and try not to cry. If you’re paying under 20% in interest, you’re one of the lucky ones–many cards carry interest rates of 24% or higher–whatever the limit is in your state. If you’ve got personal loan debt, that’s well over 10% as well–so if your balance for all your high-interest debt is over $25,000, you’re paying over $5,000 each year in interest payments–and if all you pay is the minimum, you’ll never pay those cards off.

Now, let’s say you’ve consolidated your debts into a cash-out debt consolidation loan, and your new loan-to-value (LTV) on your house is 88%. With reasonably good credit, your new interest rate is around 5%. Suppose your house payment on a $225,000 loan is $1300 monthly. A cash-out refinance loan, with a new balance of $280,000 and a rate of 4.85%, carries a monthly principal and interest payment of $1131, with an estimated $350 for taxes and insurance. That totals $1481 for all your monthly debt, since you’ve eliminated the five hundred or so dollars you’ve been paying in high-interest debt.

Getting Started With The Refinance Process

When you refinance your house, it’s very much like the process you had when you bought your home, only there’s no realtor involved. You’ll complete an application and get pre-qualified–our loan officers will then present you with your loan options, and you’ll work together to figure out which one is best for you. You’ll upload any documentation, and we’ll order an appraisal, title search, and payoff from your current lender. Your loan officer will also get the payoffs on those cards and other loans for you, so all you have to do is take out your scissors and cut up the cards.

Special Loans And Cash Out Refinancing

Most mortgages are conventional loans, but if yours is an FHA or VA mortgage, don’t worry–you can get a cash-out debt consolidation loan under those programs, too.

A VA refinance is pretty straightforward; provide your Certificate of Eligibility and meet the lender guidelines, and you can tap into up to 100% of your equity. You are subject to VA loan limits, however, and they vary by area.

If your current mortgage is FHA and you want to stay with that loan program, you can get a cash out FHA refinance. If your credit score is on the lower side and you don’t qualify for conventional financing, you can borrow up to 85% LTV with an FHA loan. As with VA, FHA loan limits are based on your location.

Start the new year off debt-free, with a cash out debt consolidation refinance.

In this blog post, then, we’re going to go over the full list of expenses that come with owning a home so that you can decide if you’re in the market to buy a home, or to continue renting as you’re currently doing.

Insurance: many lenders, especially from the so-called “big banks,” will require you to have homeowner’s insurance before giving you a mortgage. This premium varies from state to state, and different environmental factors — such as your area’s propensity for hurricanes, earthquakes, and flooding — can drive the price up significantly.

Property Taxes: again, this is an inevitable cost. Now, there are some mortgages that allow this to be built in — and paid — from the monthly mortgage payment, but in the end, this will also drive your monthly payment up to more than you thought before. Like insurance premiums, property taxes vary from state to state, and are dependent on the value of your home.

Utilities: you thought you had the “utilities” thing down pat when you were living in your first studio apartment, but the reality is, the utilities go up tremendously when you’re trying to heat, water, and provide electricity to a home with a few thousand square feet. Make sure you budget accordingly!

Cash-out refinancing is a good option for you if you want a lump sum of money financed at a relatively low-interest rate. You’ll probably qualify for this type of refinancing if you have already paid off a significant portion of your mortgage.

For instance, if you still owed $50,000 on a home that’s worth $150,000, you could ask the bank to refinance $70,000. They’d pay off the $50,000 left and give you a check for $20,000, then you’re responsible for paying off the $70,000 mortgage according to the terms. This is a great deal when you need money, but it isn’t the right move for everyone.

Lower Interest Rates

Cash-out financing makes sense if you can get lower interest rates. When you get a quote from the bank, compare this offer to the current rate on your mortgage as well as the rate you’d receive if you were to finance the extra money a different way, such as with credit cards or a home equity loan. If the rate is higher, though, you’ll end up paying more money in the end.

Lower Payments, Longer Term

When you refinance your mortgage, you can sometimes lower your monthly payment, which is a good move for those who are feeling a financial pinch. The lump sum you receive can pay off debt so that you only have to focus your efforts on the new mortgage. However, you’re also taking on a new 15- or 30-year mortgage. If you have 10 years or less on your original mortgage, the refinance isn’t worth it, since a larger percentage of your current payment is going toward the principal balance. Taking on a new mortgage is like starting over.

Other Things to Note

When you refinance your mortgage, you’ll have to pay closing costs. This can put a dent in the money you were hoping to receive. Home equity loans don’t have these charges. You should also pay attention to whether you’re getting a fixed or adjustable rate mortgage, as this affects how much your monthly payment is over time.

Preparing to Apply

Ultimately, cash-out refinancing makes sense for some people, while others might benefit from a home equity loan instead. A qualified loan adviser can take a look at your personal situation to help you decide which method is right for you. Gather up your financial documents like tax returns and pay stubs and contact us to speak with a loan adviser.

Take a break from stressing about that mortgage re-finance. You deserve a break and you can get one that is not only challenging and fun, but beneficial to your property. Home Gardening is a constructive way to add value to your home, as you improve your curb appeal.

Home gardening is often as simple as starting flower seeds in an existing bed or as advanced as hiring a team of professionals for a total re-do of your landscape. Explore the possibilities as you inspect your existing shrubs, trees, and flowers.

Your first step in the home gardening process is clean up. Weeding and clearing unwanted undergrowth is a great way to get some exercise, fresh air and a new perspective on your landscape. Once you have removed the excess growth, pruning or planting may be the next step.

Perhaps you desire fresh, homegrown vegetables or just harvested herbs for your culinary endeavors. Start both easily by planting a few seeds in good soil. You will find California weather most cooperative when planting this time of year. Remember to keep the soil consistently moist until the seeds sprout.

A wide variety of salad greens grow now, some ready for harvest in as little as 30 days. Micro-greens are ready in two weeks. Dill, parsley and chives are low maintenance herbs that grow easily in any sunny spot. Frequent harvesting promotes the growth of most herbs.

If vegetables and herbs are not your home gardening choice, consider some of the many fragrant ornamental plants that thrive in the California climate. Proper placement and planting provides improved curb appeal and an increase in the value of your home.

After clearing your mind and reducing stress with these enjoyable activities, contact us about that mortgage you may need. Happy gardening.

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